The Royal Bank of Scotland faced fresh damage to its reputation on Monday after the British government handed financial watchdogs a report claiming it forced small firms to default in order to seize their assets.

Business Secretary Vince Cable confirmed on Sunday that he had given the report, written by Lawrence Tomlinson from the Department for Business, Innovation and Skills, to the Financial Conduct Authority and the Prudential Regulation Authority.

The report, published on Monday, has been compiled over the past six months and focuses on claims against the bank’s global restructuring group (GRG), which deals with risky loans.

RBS – 81 per cent owned by the state following its near collapse during the 2008 financial crisis – announced on November 1 it was to create an internal “bad bank” to run down £38 billion (HK$478 billion) of high-risk assets as the government looks to return the rescued lender to the private sector.

There are many devastating stories of how RBS has wrecked good businesses and the ruinous impact this has on the lives of the business owners

Lawrence Tomlinson, Department for Business, Innovation and Skills

The report alleges the bank hit seemingly healthy businesses with unmanageable charges and rates before seizing their assets at a knock-down price.

“From the cases I have heard, it is clear that a perception has arisen that the intention is to purposefully distress businesses to put them in GRG and subsequently take their assets … at a discounted price,” said the report’s author.

“There are many devastating stories of how RBS has wrecked good businesses and the ruinous impact this has on the lives of the business owners.

“I look forward to seeing how RBS proposes to take forward the forensic investigation into this part of the bank.”

Cable called the allegations “very serious”.

“I am however confident that the new management of RBS is aware of this history and is determined to turn RBS into a bank that will support the growth of small and medium-sized businesses,” the minister said.

This article appeared in the South China Morning Post print edition as: